7 Aug 2008

More misery for US mortgage firm

7:31 am on 7 August 2008

Freddie Mac, which offers funding for a huge proportion of US mortgages, has posted a quarterly loss amid continued problems in the housing market.

As mortgage defaults climb and house prices sink, it made a loss of $US821 million in the three months to the end of June, down from a profit of $US729m.

Shares in Freddie Mac fell sharply last month on fears that it would run out of money to fund its business. The federal government was forced to take radical steps to ease the panic.

In its latest set of earnings, Freddie Mac set aside $2.5 billion, compared with $US1.2 billion in the first quarter of 2008, and slashed its dividend by 80% to 5 cents pending board approval.

The company said this reflected increases in mortgage delinquency rates, foreclosures and estimated losses due to continued declines in home prices, it said.

Freddie Mac reiterated that it would raise $5.5 billion of new capital to shore up its balance sheet and raised the possibility that it may need to raise more than that depending upon "market conditions".

Shares in Freddie Mac were down 12% in late morning trade in New York on Wednesday while Fannie Mae shares had dropped nearly 9%.